Power system is considered the most stochastic system in the world—electricity demand varies significantly over the time of the day, seasons etc. Electricity must be supplied just in time, as it is not economical to store it in large quantities. The balance of electricity demand and supply needs to be maintained in real time for a safe and secure grid.
Currently, it is achieved mostly by varying generation by the system operator, which necessitates large-scale capital investment for new plants or dispatching power from inefficient plants. Some times, load shedding is resorted to maintain grid stability, resulting in hardship to consumers.
Increasing renewable penetration
Considering environmental concerns as well as energy security, the penetration of renewable generation has significantly grown across the world, and it is expected to further grow at a higher pace. In India, it is about 45GW and in terms of energy it is about 6-7%. Now, the government has ratified the COP21 agreement and in this context set an ambitious target of installing 175GW of renewable generation by 2022. Unlike conventional generation, renewables are non-dispatchable due to their intermittent nature, adding complexity to the real-time balance.
To secure balance in the grid, both demand and supply need to be flexible. In this direction, the government is preparing a comprehensive hydro policy with viability gap funding, compulsory hydro power purchase obligation, exploring possibility of extending the same benefits to greater than 25MW plants and other benefits. The Indian power system needs to be equipped with quick start and stop as well as low technical minimum operation of generating plants. Recently, the Central Electricity Regulatory Commission came out with regulation on ancillary services to quickly ramp up and down thermal plants. All these measures are to achieve flexibility in supply-side. This may not be adequate with large-scale penetration of renewable energy, so work has to commence in a big way to have flexibility on demand/load side.
Several initiatives have been taken on demand-side management (DSM), particularly on energy efficiency through schemes by the Bureau of Energy Efficiency and the Energy Efficiency Services Ltd, like pan-India LED programme, STAR labelling of consumer goods and the Perform Achieve Trade Scheme, replacement of agricultural pumps etc. DSM can be broadly classified in two categories: energy efficiency and demand response. Demand response is defined as changes in electric usage by end-consumers from their normal consumption pattern in response to changes in the price of electricity over time, or to incentives maybe in terms of cash or kind, designed to lower electricity use at times of high wholesale market price or when system reliability is jeopardised. Not much action has been initiated in the demand response area.
Demand response was originally developed by electric utilities to increase flexibility on demand side temporarily shifting or reducing peak energy demand, thereby avoiding costly energy procurement and capacity investments for a small number of hours of need. As variable resources such as wind and solar provide an increasing proportion of electricity to the grid now, new forms of demand response are being developed with capabilities that surpass traditional peak load, reducing demand response. The next generation of demand response is automated and linked to distributed energy resources including storage to quickly respond to changes in system frequency or to increase the demand, which improves the utilisation of renewable resources as well as conventional thermal plants.
Benefits of DSM
Benefits offered by generally fall in three categories: economic efficiency, system reliability and environmental benefits. Economic benefits consist of lower wholesale market prices due to the ability of demand response to displace the most expensive peak generation resources or avoidance of more costly new capacity addition by flattening the demand curve. Financial benefits consist of bill saving and incentive payments that the customer receives in return for curtailing, shifting or otherwise modifying the load.
With regard to system reliability, demand response resources may also be called upon by system operators to maintain the security of the electric system in the event of an emergency and avoid brownout or blackout. Some demand resources can be used to provide ancillary services. This has become more critical with large-scale intermittent renewable energy penetration. System stability improves via better management of generation supply and demand.
Environment benefits are mostly associated with the displacement of inefficient fossil fuel plants and the ability to facilitate integration of renewable resources. The flexibility of demand response allows power systems to accommodate higher penetration of variable resources whose energy output can fluctuate quickly and lead to excess or deficit generation supply in the system.
Demand response can be provided to all categories of customers—industrial, commercial, residential—employing different technologies or strategies to achieve shifting in demand. Demand response resources interface with wholesale market in two ways—either as resources that are dispatched by the system operator or as non-dispatchable resources that may voluntarily adjust their consumption based on price signals. Dispatchable resources typically bid directly in wholesale markets or enter into contract to receive payments for demand reduction, whether in respect to a reliability event or high market prices. Non-dispatchable resources generally participate in price-based demand response programme such as real-time pricing, peak pricing and time of use tariff. These price-based programme provide users with ongoing signals to encourage lower energy consumption during periods of high electricity prices, but are generally not considered firm resources as they are not dispachable and grid operators do not know the degree to which customers will respond. These non-dispatchable price-based programmes may be more suited for residential and small commercial customers.
Demand response resources need to comply with dispatch signals from system operators and changes in demand must be measured and verified. Measuring and verification requires accurate metering through smart meters and telemetry infrastructure for two-way communication between consumer and system operator.
Experience in the US and Europe has been encouraging. In the recent staff report of the Federal Energy Regulatory Commission of the US, it has been observed that demand response has been quite successful. The enrolment in incentive-based programme was about 9.2 million consumers in 2013, which is 70% more than in 2012. Nationwide, the total potential is about 29,000MW, which is about 6.2% of the peak demand, though in certain pockets it is considerably high. About 52 million smart meters were in operation in 2013, of the 138.1 million meters installed. It is expected that smart meters will be fully deployed in the near future; this will enhance usage of demand response. The key challenges are base line determination and infrastructure requirement, regional verses distribution utility dispatch, and market-based institutional resistance to changes.
The European experience demonstrates that competition around consumer-centred aggregation services is the key enabler of investment and growth in demand response. These services can be provided either by an independent aggregator or a retailer but it is important that these services focus on consumer willingness and the ability to sell the value of his flexibility and can be unbundled from the sale of electricity.
Competition between the retailer and aggregator allows for the growth of a robust competitive demand response service industry and is a key component of a consumer-centric electric market.
Way forward for India
India has launched a comprehensive reform scheme called the Ujwal Discom Assurance Yojana (UDAY). Under it, 35 million smart meters will be installed in three years from 2017 through 2019, which is the basic requirement for introduction of demand response. The time is right to deliberate and introduce an appropriate model for our country. A key element in enabling demand response is development of market regulation. Wholesale market rules need to be established to facilitate the ability of demand response resources to participate actively in the market to provide energy, capacity or ancillary services in a manner similar to generation resources.
The author is former chairman & managing director of the Power Grid Corp of India Ltd.
Views are personal